Here's why the EML Payments (ASX:EML) share price is cratering today

The EML Payments Ltd (ASX:EML) share price is cratering on Wednesday after shock news out of its Ireland business. Here's what's happening…

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With the market sinking on Wednesday, a good number of shares are tumbling lower. However, few are performing as poorly as the EML Payments Ltd (ASX: EML) share price.

In afternoon trade, the payments company's shares are down 42% to $2.99.

It may be hard to believe, but this is actually a big improvement from earlier in the day. Shortly after the market open, the EML Payments share price crashed 52% lower to $2.47.

Why is the EML Payments share price under pressure?

Investors have been heading to the exits in their droves on Wednesday after EML Payments provided the market with an update on its European operations.

According to the release, the Central Bank of Ireland has concerns over the company's PFS Card Services (Ireland) business in relation to Anti-Money Laundering/Counter Terrorism Financing compliance.

This is a particularly big deal as EML Payments' Prepaid Financial Services subsidiary has been running its European operations through this business since December after moving them from the UK following Brexit. In light of this, its ability to operate throughout the European Union is thanks entirely to authorisation by the Central Bank of Ireland.

And this certainly is a major part of the overall EML Payments business. For example, during the third quarter of FY 2021, the company estimates that 27% of its total revenue was generated through the PFS Card Services (Ireland) business.

What's next?

Today's release has arguably generated more questions than answers, which is potentially why the EML Payments share price has fallen so heavily.

But what we do know, is that the Central Bank of Ireland is inclined to issue directions pursuant to section 45 of the Central Bank (Supervision and Enforcement) Act 2013.

Management has warned that the direction could materially impact the European operations of the Prepaid Financial Services business should they be made. This includes potentially restricting activities under the Irish authorisation. It also warned that it is unclear what impact this will have on costs and its results.

EML said: "Given the timing and early stages of discussion with the CBI, EML is presently unable to estimate the potential direct and consequential costs (including but not limited to legal costs) and impacts of the Correspondence on the Group's consolidated FY21 results."

Anything else?

This is particularly bad timing for EML Payments as it has recently entered into a binding agreement to acquire Sentenial Limited and its open banking product, Nuapay. This is for an upfront enterprise value of 70 million euros (A$108.6 million) and an earn-out component of up to 40 million euros (A$62.1 million).

Sentenial is a leading European Open Banking and Account-to- Account (A2A) payments provider, utilising a cloud-native, API-first, full stack enterprise grade payment platform.

This acquisition remains subject to regulatory approval. And given what has occurred today, the market may be concerned that this development could impact its approval.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia has recommended EML Payments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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